Toyota Letting Tesla Battery Deal Run Out Of Juice

Signaling that it believes the best bet for zero-emissions technology to be hydrogen fuel cells rather than battery-powered
electric vehicles championed by Tesla Motors, Toyota confirmed yesterday that it is ending a partnership that has been sputtering to a standstill after an initial burst of enthusiasm and a $50 million investment.

Tesla has been providing the powertrains and batteries for Toyota RAV4 EVs under a three-year agreement announced in 2010 that was scheduled to expire this year — and now definitively will — after
production of about 2,600 vehicles. In its quarterly filing last week, Tesla had indicated that it
expected the deal to end, Bloomberg News’ Alan Ohnsman observed.

“As was the arrangement, battery-supply to the current model RAV4 will conclude this year when we reach the originally planned number of
vehicles,” Toyota said yesterday in a statement cited by the Wall Street
Journal’s Mike Ramsey. “We don't have anything to report on future product plans. But we will continue to maintain a good relationship with Tesla and to evaluate the feasibility of
working together on future collaborations.”

Toyota maintains a 2.4% stake in Tesla.

“The electric RAV4 has sold poorly, despite low-cost lease and loan offers Toyota introduced last year to promote sales,” Hiroko Tabuchi writes in the New York Times. “And Toyota has
increasingly signaled that it sees fuel cells as the most viable zero-emissions technology, putting it at odds with Tesla, an evangelist for electric-vehicle technology.”

Bloomberg’s Ohnsman pointed out that “models such as the RAV4 EV sell mainly in California, which requires large automakers to offer some
pollution-free vehicles and that next year Toyota will begin selling its hydrogen fuel cell sedan, another type of zero-emission vehicle that fulfills California’s ZEV mandate.”

It will also “focus on
developing hydrogen refueling stations to support fuel-cell technology,” Tabuchi reports, pointing out that Toyota also is the global leader in gas-electric vehicles such as the Prius and Camry
Hybrid.

Toyota North American CEO Jim Lentz indicated at a conference a few weeks ago that “the U.S. side of the company is far more
excited by the H2 car than colleagues in Japan,” Sebastian Blanco reported in
AOL’s “Auto Blog Green.” In fact, he said that they were “about fivefold more bullish.”

Technological advances
and the fact that Daimler, General Motors and Nissan also plan to sell fuel cell models “may help the vehicles get a market foothold faster than hybrids, according to Lentz,”
Bloomberg’s Ohnsman wrote in an April 4 piece covering the Wall Street
Journal’s ECO:nomics conference in Santa Barbara, Calif.

“Their acceptance
could get off to a quicker start than the hybrids did,” Lentz told Ohnsman. “I think you’re going to see a lot more marketing of the concept of fuel cell much sooner than you did for
hybrids, because basically the whole industry is behind it.”

Tesla, meanwhile, is doubling down on its technology, building two
“gigafactories” for making battery cells and packs for its cars, as Ucilia Wang reports in Forbes. It has not announced yet where they
will be but it does not want to get caught short as demand for its vehicles builds.

Looking at the silver lining for Tesla, Wall Street Cheat
Sheet’s Justin Lloyd Miller points out that it is
“ramping production of its Model S sedan and the internals for Mercedes-Benz’s electric B-Class compact. Given that’s Tesla’s biggest headwind is production capacity, the end
of the RAV4 contract may help alleviate some strain and help the company focus more on building its own vehicles and supplying the powertrains to Daimler, which is also a Tesla
shareholder.”

“Since its introduction in 2012 through April of this year, Toyota has sold 1,594 RAV4 EVs, and in Tesla's Q1
earnings report the automaker said it brought in $15.1m from the venture,” Jalopnik’s Damon Lavrinc reports.

Kelley Blue Book senior analyst Alec Gutierrez tells the NYT’s Tabuchi that the end of the deal will not be a big deal to Tesla with the
automaker shifting its attention to the Model X sport utility vehicle coming off the line next year. “Still, it came as a disappointment, he
said,” Tabuchi writes.

“There was a hope that this would have taken off and that Toyota would plan a mass-market vehicle,”
he said. “But now they’re heading in two different directions.”

Thom Forbes has written about marketing and media for more than 25 years. He was editorial director of Adweek and its sister publications in the 1980s and has covered the beat as a freelancer since 1990. For more than three years, he wrote Around the Net in Brand Marketing for MediaPost.